Deriving Value

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Renegade Economists Show 81

as broadcast on www.3cr.org.au on Wed March 18th
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Our NZ colleague Bob Keall from Resource Rentals for Revenue NZ discusses our purpose, with a few strong words on negative gearing amongst others. We also focus on the derivatives market and the shadow banking system. This is a technically shortened podcast due to a re-booting of the 3CR hard drive. Sorry the first 9 minutes are lost where we tee off on the FHOG and warn renters to stay renting, don’t buy to prop up the speculators.

RENT DON’T BUY!

Show Notes

Govt urged to extend first home grant

The federal government must consider alternative measures to support the housing market if it feels extending the deadline of the increased first home owners grant is not warranted, a mortgage broker says.

Demand for home loans by first time home buyers has jumped to record levels since the grant was increased in October.

Loan Market Group executive director John Kolenda says that unless the offer is extended for a further six months to maintain the “vibrancy” in the market, there is a risk of a severe downturn once the boosted grant expires.

Buyers Wanted

The HIA, which represents home builders, is lobbying for the Federal Government to buy excess stock.
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FHOG is Subprime-like

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Commonwealth bank CEO Ralph Norris made some sensible comments about the first home owners grant, note particularly the second paragraph on the FHOG enabling the same risky lending as the sub prime lending practices in the US.

“The first home buyers grant has provided a stimulus to this point, but we have to be careful that this doesn’t become a situation where this is an open-ended offer,” Mr Norris said.

He noted the subprime lending woes in the US had largely come about because people who could not afford to borrow were encouraged to.

“All of us have to make sure we’re lending responsibly to first home buyers,” he said.

Please read this piece on the risky nature of the FHOG (that started this line of thinking), the speculative storm brewing and also the following warning – RENT DON’T BUY!

Empty Spaces

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Mason Gaffney

February 2009

“Phantom faces at the window.
Phantom shadows on the floor.
Empty chairs at empty tables
Where my friends will meet no more” – from Alain Boublil, Les Mis

Many stores have closed in the last year; they stand empty behind signs reading “Available”, “For lease”, or “First month free”. So have many industries, their gates locked, their girders rusting. The capital in them is wasted, poured down a rat-hole. Multi-million dollar freighters are mothballed, with no cargos to carry; others sail with unfilled capacity. Vast warehouses stand half-empty. Fleets of trucks wait for loads that never come. Redundant McMansions stand waiting for buyers, some advertising “Bank-owned”. Freight trains haul too many “empties going back”.

It’s not just the capital that’s wasting. There is land under and around those empty buildings, often more valuable than the buildings themselves. It might better be vacant, for then at least the owner would not feel committed to speculate in the old building as well as the land. It’s more than the land literally under the building, too. Even residences have yards, garages, and driveways; some have palatial grounds. Retail and wholesale and industrial buildings have vast parking areas and aprons attached for employees, customers, and deliveries. When city planners count up vacant lots, if they do, they usually see just lots without buildings, of which there are many, but nowadays there are as many or more invisible vacant lots under and attached to empty buildings.

We worry about attacks from Al Quaeda, and invasions of immigrants from Central America, but these empty spaces and vacant lands might just as well be ceded to the Taliban, or drowned like the lost continent of Atlantis, for all the good they are doing us. Osama bin Laden’s attacks are pinpricks compared with the damage we do ourselves by mismanaging our economy: we are doing his work for him.
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Speed Renting Tues March 17th

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Are you frustrated with the search for affordable rentals????

Speed Renting is set to save renters of all ages, international and local students from sleep crumpin! Thousands of international students have hit Oz in the last month and stories abound of dodgy real estate sharks charging double the market rate for a crumpled corner of an over crowded lounge room (not even a bedroom!).

Meanwhile thousands of houses lie vacant.

Step into the breach – Speed Renting! Whilst we can’t force these speculative vacancies onto the market, we can assist you in finding the best possible housemates. Here roomseekers can meet householders directly and both sides get to suss out each other over 3 minutes of chatter. Benefit from 30 plus opportunities to find the right place with the right people at the right price.

Tues March 17th
6pm – 9pm
The Order of Melb (opp RMIT), 2/ 401 Swanston St, CBD

www.iwanttolivehere.org.au/sr
Registration is ESSENTIAL so we can fit in as many people as possible

Best of all – it’s FREE. Please forward this link onwards and upwards.

happy house hunting (with a drink in hand),
the Earthsharing team

Grants distort lending in the housing market

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Lend
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This article was so good we contacted Australia’s best e-news Crikey to re-print. A must read

Adam Schwab writes:

If the only property data you looked related to the lower end, first home buyers sector, you would be forgiven for thinking we are in the midst of an economic boom, rather than what appears the be the first worldwide depression in 70 years.

While prices in high-end property have weakened substantially as investment bankers and other professional types are laid off or receive dramatically lower bonuses, properties under $400,000 have remained firm. This has largely been due to the Howard-Rudd First Home Owners Grant (FHOG), lower interest rates and increasing rental costs.

As part of its first stimulus plan last October, the Federal government increased the FHOG from $7000 to $14,000 (or $21,000 for new properties purchased from developers). The effect has been dramatic, with Australian Financial Review noting that “the Australian Bureau of Statistics reported yesterday that first home-buyers were pouring into the market at record levels, lured by low interest rates, generous government handouts and increasingly affordable housing.”

Many first-home buyers are “taking the plunge” according to the AFR because it is ostensibly now cheaper to purchase a home than rent one. The only problem with that theory is it ignores many of the less obvious costs which come with owning a home. This principle was nicely outlined by Kate Lehay in The Age last Thursday, when she reported:
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